How to Determine Legal Royalty Fees
Royalties are a percentage of sales paid to artists such as writers, musicians and filmmakers when a distributor sells their intellectual property. They are usually determined in a licensing agreement or contract agreed upon by both parties.
Royalties come in several forms, such as an advance, a net percentage of sales or a gross percentage of sales. Be sure to read the fine print on the payment terms before you sign away the rights to anything you have created.
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Things You'll Need
- Calculator
- Contract
- Royalty Statement
- Attorney (optional)
- Certified public accountant (optional)
Instructions
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Read your contract slowly and completely. Don't skip to the royalty clause. Besides the actual money involved, a contract that licenses your work will include several important clauses that pertain to the term, territories and what happens if the vendor fails to pay you on time. If you don't understand the contract, hire a lawyer to help explain it in plain English. Also be sure that you contract allows you to access the company's accounting books in the event of a dispute.
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Evaluate the economics of the royalty offer. For example, if you want to make $100,000 on your new book and the publisher offers 10 cents per copy, it will need to sell a million copies for you to reach your revenue target. Investigate the past performance of the distributor to predict how many copies of your work can be sold realistically. If the distributor is unreliable or unproven, consider asking for an advance or lump-sum payment.
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Interpret your royalty statement carefully. After agreeing to a specific royalty, the distributor will send you regular reports that detail how many copies of your work have been sold and how much money you are entitled to. Be sure to check the math. Accountants are known to make mistakes, especially in favor of the company. In the case of "net" royalties, be sure the report notes all expenses deducted from your payment as individual line items.
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Cash your royalty check if the report is satisfactory. Otherwise, try to clarify any questions you have about the report with your distributor. If you still have doubts, review the distributor's accounting books. An audit should be performed by a certified public accountant. As a last resort, retain legal counsel. Fortunately, most disputes rarely require that option.
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Tips & Warnings
Contact other artists represented by a distributor and ask if they are happy with the timeliness and amount of their royalty payments.
Make sure everything you want in your distribution deal is mentioned in the contract. Anything not in writing is of dubious legality and can lead to major problems for both licensor and licensee down the road.
